Equity
The residual ownership interest in an asset after all liabilities have been deducted.
What is Equity?
Equity represents the ownership interest remaining after all liabilities are subtracted from total assets. In corporate finance, shareholders' equity (also called book value or net assets) equals total assets minus total liabilities and is reported on the balance sheet. Equity can grow through retained earnings when a company is profitable, or shrink through dividends, buybacks, and losses. In investing, equity broadly refers to stocks — instruments that give holders an ownership stake in a business and a claim on its future profits.
Example
Johnson & Johnson reported shareholders' equity of approximately $71 billion in its 2023 annual report. This figure represents the cumulative investment by shareholders plus retained earnings accumulated over decades, minus any dividends paid and share repurchases. Return on equity (ROE) divides net income by this equity figure to measure how efficiently management generates profit for shareholders.